Steel companies have increased prices by about Rs 2,000 a tonne during the past 10 days, on the back of an increase in domestic demand and international prices, taking it to near-pre-COVID levels.
Since the end of July, there have been two rounds of rise. Industry sources say that in the two cycles that have taken place, prices have risen by around Rs 2,000 per tonne.
V R Sharma managing director Jindal Steel & Power Ltd (JSPL), said that the market had bottomed out. "There have been two increases since the end of July. In the last two weeks, pellet and iron ore prices have both increased by about $10 a tonne and scrap prices by $25-$30 a tonne, he added.
So higher input cost is an additional factor driving prices. Industry sources pointed out after the latest round of increase in August, prices would be lower from March levels by about Rs 1,000 a tonne.
Jayant Acharya director-commercial & marketing JSW Steel, said, "The gap between international domestic prices was 7-8 per cent. Over July and August, we have been able to cover 6 per cent. But we are still below international prices. Imports of hot-rolled coil (HRC) from China are at $500-510 a tonne and domestic prices are still below that level. Prices in the domestic market are increasing because there is a demand-pull and internationally prices have gone up. Incrementally, we are getting back to shape.”
HRC prices reported a steady fall from Rs 38,000 a tonne to Rs 34,750 in June a tonne due to weak demand. However, since July prices started moving up. A producer explained that there was high export order load and mills were not operating at full capacity with most of the major producers at 80-90 per cent capacity. "So, supply-side adjustments were also happening while demand was also coming back," he pointed out.
Global demand has mostly been guided by China, where growth has started ahead of other countries. International prices were now at the January level, one of the producers said.
With the exception of China, most countries reported a decrease in manufacturing during the month of June. According to figures from the World Steel Association (WSA), in June 2020 China manufactured 91.6 million tonnes of crude steel, an rise of 4.5 per cent compared to June 2019. In contrast, India 's output declined by 26.3 per cent, Japan by 36.3 per cent, South Korea by 14.3 per cent, Germany by 27.3 per cent, Italy by 13 per cent, and France and Spain by 34.9 per cent and 31.5 per cent respectively. The United States produced 4.7 million tonnes of crude oil, a decline of 34.5 per cent compared to June 2019.
Jayanta Roy, ICRA's senior vice-president, stated, however, that given the rise over months, domestic demand remained very fragile and was down by more than 40 per cent year-on-year in June.
"Near term demand outlook to remains weak, given the onset of monsoon, which will slow down the pace of execution of construction and infrastructure projects. Such projects are key to the growth of domestic demand to the pre-COVID levels. However, given the strategy of corporate sectors to conserve cash in the prevailing challenging environment, and tightness in the government's fiscal position, it is not certain to what extent new projects will commence in the near term. Demand from the automobile sector to be unlikely to provide much support," he said.